SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File No. O-5258
IEH CORPORATION
(Exact name of registrant as specified in its charter)
New York 1365549348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
140 58th Street, Suite 8E, Brooklyn, New York 11220
(Address of principal executive office)
Registrant's telephone number, including area code: (718) 492-4440
------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the Issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
2,303,468 shares of Common Shares, par value $.01 per share, were outstanding as
of June 27, 2003.
IEH CORPORATION
CONTENTS
Page
Number
------
Part I - FINANCIAL INFORMATION
ITEM 1- FINANICAL STATEMENTS
Balance Sheets as of June 27, 2003 (Unaudited) and March 28, 2003 2
Statement of Operations (Unaudited) for the three months ended
June 27, 2003 and June 28, 2002.
4
Statement of Cash Flows (Unaudited) for the three months ended
June 27, 2003 and June 28, 2002.
5
Notes to Financial Statements (Unaudited) 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. - CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Default Upon Senior Securities
Item. 4 Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
1
IEH CORPORATION
BALANCE SHEETS
As of June 27, 2003 and March 28, 2003
June 27, March 28,
2003 2003
---------- ----------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash $ 4,608 $ 5,565
Accounts receivable, less allowances for doubtful accounts
of $10,062 at June 27, 2003 and March 28, 2003 618,075 769,845
Inventories (Note 3) 1,055,000 1,089,075
Prepaid expenses and other current assets (Note 4) 55,052 53,722
---------- ----------
Total current assets 1,732,735 1,918,207
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $5,839,065 at
June 27, 2003 and $5,788,365 at March 28, 2003 1,131,351 1,119,513
---------- ----------
1,131,351 1,119,513
---------- ----------
OTHER ASSETS:
Other assets 43,286 42,430
---------- ----------
43,286 42,430
---------- ----------
Total assets $2,907,372 $3,080,150
========== ==========
See accompanying notes to financial statements
2
IEH CORPORATION
BALANCE SHEETS
As of June 27, 2003 and March 28, 2003
June 27, March 28,
2003 2003
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts receivable financing $ 668,425 $ 712,659
Notes payable, equipment, current portion (Note 7) 17,702 16,978
Accrued corporate income taxes 15,802 16,800
Union pension plan, current portion (Note 9) 30,000 30,000
Accounts payable 931,918 1,017,432
Pension plan payable, current portion (Note 9) 70,000 39,000
Other current liabilities (Note 5) 122,908 159,833
----------- -----------
Total current liabilities 1,856,755 1,992,702
----------- -----------
LONG-TERM LIABILITIES:
Pension Plan payable, less current portion (Note 9) 174,000 205,000
Notes payable, equipment, less current portion (Note 6) 18,749 7,822
Union pension plan, less current portion (Note 9) 6,328 13,828
----------- -----------
Total long-term liabilities 199,077 226,650
----------- -----------
Total liabilities 2,055,832 2,219,352
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
2,303,468 shares issued and outstanding at June 27, 2003
and March 28, 2003 23,035 23,035
Capital in excess of par value 2,744,573 2,744,573
Retained earnings (Deficit) (1,916,068) (1,906,810)
----------- -----------
Total stockholders' equity 851,540 860,798
----------- -----------
Total liabilities and stockholders' equity $ 2,907,372 $ 3,080,150
=========== ===========
See accompanying notes to financial statements
3
IEH CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
----------------------------
June 27, June 28,
2003 2002
----------- -----------
REVENUE, net sales $ 1,222,252 $ 1,211,693
----------- -----------
COSTS AND EXPENSES
Cost of products sold 903,989 874,743
Selling, general and administrative 242,856 197,683
Interest expense 29,798 34,650
Depreciation and amortization 50,700 50,400
----------- -----------
1,227,343 1,157,476
----------- -----------
OPERATING INCOME (LOSS) (5,091) 54,217
OTHER INCOME 33 120
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (5,058) 54,337
----------- -----------
PROVISION FOR INCOME TAXES 4,200 4,200
----------- -----------
NET INCOME (LOSS) $ (9,258) $ 50,137
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (.004) $ .022
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (in thousands) 2,303 2,303
=========== ===========
See accompanying notes to financial statements
4
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three Months Ended
-----------------------
June 27, June 28,
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,258) $ 50,137
--------- ---------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 50,700 50,400
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 151,770 (190,363)
(Increase) decrease inventories 34,075 21,839
(Increase) decrease in prepaid expenses and other current assets (1,330) 3,763
(Increase) decrease in other assets (856) 254
Increase (decrease) in accounts payable (85,514) 47,851
Increase (decrease) in other current liabilities (36,925) (13,461)
Increase (decrease) in accrued corporate income taxes (998) 4,200
Increase (decrease) in due to pension plan (7,500) (7,500)
--------- ---------
Total adjustments 103,422 (83,017)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 94,164 (32,880)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (62,538) (57,403)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $ (62,538) $ (57,403)
========= =========
See accompanying notes to financial statements
5
IEH CORPORATION
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(Unaudited)
Three Months Ended
----------------------
June 27, June 28,
2003 2002
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable $ 16,790 $ --
Principal payments on notes payable (5,139) (6,336)
Proceeds from accounts receivable financing (44,234) 112,756
Increase (decrease) on loan payable -- (15,173)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (32,583) 91,247
--------- ---------
INCREASE (DECREASE) IN CASH (957) 964
CASH, beginning of period 5,565 2,875
--------- ---------
CASH, end of period $ 4,608 $ 3,839
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
cash paid during the three months for:
Interest $ 20,813 $ 26,348
========= =========
Income Taxes $ 5,198 $ --
========= =========
See accompanying notes to financial statements
6
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1- INTERIM RESULTS AND BASIS OF PRESENTATION
The accompanying unaudited financial statements as of June 27, 2003 and
for the three month periods then ended have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Items 303 and 310
of Regulation S-B. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the annual financial
statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position
as of June 27, 2003 and the results of operations and cash flows for the
three month periods then ended. The financial data and other information
disclosed in these notes to the interim financial statements related to
these periods are unaudited. The results for the three months ended June
27, 2003 are not necessarily indicative of the results to be expected for
any subsequent quarter or the entire fiscal year. The balance sheet at
March 28, 2003 has been derived from the audited financial statements at
that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. The Company
believes, however, that the disclosures in this report are adequate to
make the information presented not misleading in any material respect. The
accompanying financial statements should be read in conjunction with the
audited financial statements of IEH Corporation as of March 28, 2003 and
notes thereto included in the Company's report on Form 10-KSB as filed
with the Securities and Exchange Commission.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business:
The Company is engaged in the design, development, manufacture and
distribution of high performance electronic printed circuit connectors and
specialized interconnection devices. Electronic connectors and
interconnection devices are used in providing electrical connections
between electronic component assemblies. The Company develops and
manufactures connectors which are designed for a variety of high
technology and high performance applications, and are primarily utilized
by those users who require highly efficient and dense (the space between
connection pins with the connector) electrical connections.
The Company is continuously redesigning and adapting its connectors to
meet and keep pace with developments in the electronics industry and has,
for example, developed connectors for use with flex-circuits now being
used in aerospace programs, computers, air-borne communications systems,
testing systems and other areas. The Company also services its connectors
to meet specified product requirements.
7
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week year
which ends on the nearest Friday in business days to March 31st. For the
year ended March 26, 2004, the year is comprised of 52 weeks. The year
ended March 28, 2003 was comprised of 52 weeks.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company's policy with respect to customer returns and allowances as
well as product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option. If the product
is repairable, the Company at its own cost will repair and return to the
customer. If unrepairable, the Company will either offer an allowance
against payment or will reimburse the customer for the total cost of
product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of the
relationship with its customers in developing the custom product. The
Company is not obligated to provide such engineering service to its
customers. The Company does not charge separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which does
not exceed market value.
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit are
insured by the Federal Deposit Insurance Corporation up to $100,000 in
aggregate. There were no uninsured balances at either June 27, 2003 or
March 28, 2003.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization using the Modified Accelerated Cost Recovery System (MACRS)
method over the estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant and
equipment which are sold, retired or otherwise disposed of are removed
from the asset and accumulated depreciation or amortization account. Any
gain or loss thereon is either credited or charged to operations.
8
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Income Taxes:
The Company follows the policy of treating investment tax credits as a
reduction in the provision for federal income tax in the year in which the
credit arises or may be utilized. Deferred income taxes arise from
temporary differences resulting from different depreciation methods used
for financial and income tax purposes. The Company has adopted Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the disclosure of "basic" and "diluted" earnings
(loss) per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is similar to basic earnings per
share except that the weighted average number of common shares outstanding
is increased to reflect the dilutive effect of potential common shares,
such as those issuable upon the exercise of stock or warrants, as if they
had been issued. For the three months ended June 27, 2003 and June 28,
2002, there were no items of potential dilution that would impact on the
computation of diluted earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting of
accounts receivable, accounts payable, and borrowings, approximate their
fair value due to the relatively short maturity (three months) of these
instruments.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities
at the date of the financial statements. Actual amounts could differ from
those estimates.
Impairment of Long-Lived Assets:
SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To Be
Disposed Of", requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has adopted SFAS
No. 121. There were no long-lived asset impairments recognized by the
Company for the three months ended June 27, 2003 and June 28, 2002.
9
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains and losses) in an entity's financial statements. This
Statement requires an entity to classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a
statement of financial position. There were no material items of
comprehensive income to report for the three months ended June 27, 2003
and June 28, 2002.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures About
Segment of An Enterprise and Related Information." This Statement requires
public enterprises to report financial and descriptive information about
its reportable operating segments and establishes standards for related
disclosures about product and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the Company's
presentation of its results of operations or financial position.
Effect of New Accounting Pronouncements:
The Company does not believe that any recently issued but not yet
effective accounting standards, have a material effect on the Company's
financial position, results of operations or cash flows.
Note 3 - INVENTORIES:
Inventories are comprised of the following:
June 27, March 28,
2003 2003
---------- ----------
Raw materials $ 687,438 $ 709,647
Work in progress 272,296 281,075
Finished goods 95,266 98,353
---------- ----------
$1,055,000 $1,089,075
========== ==========
Inventories are priced at the lower of cost (first-in, first-out method)
or market, whichever is lower. The Company has established a reserve for
obsolescence to reflect net realizable inventory value. The balance of
this reserve as of June 27, 2003 was $12,000. At March 28, 2003, the
balance of this reserve was $0.
Inventories at June 27, 2003 and March 28, 2003 are recorded net of this
reserve.
10
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets are comprised of the following:
June 27, March 28,
2003 2003
--------- ---------
Prepaid insurance $ 36,348 $ 49,816
Prepaid corporate taxes 3,737 3,737
Other current assets 14,967 169
--------- ---------
$ 55,052 $ 53,722
========= =========
Note 5 - OTHER CURRENT LIABILITIES:
Other current liabilities are comprised of the following:
June 27, March 28,
2003 2003
--------- ---------
Payroll and vacation accruals $ 40,881 $ 77,622
Sales commissions 11,950 13,795
Other 70,077 68,416
--------- ---------
$ 122,908 $ 159,833
========= =========
Note 6 - NOTES PAYABLE EQUIPMENT:
The Company financed the acquisition of new computer equipment and
software with notes payable. The notes are payable over a sixty month
period. The balance remaining at June 27, 2003 amounted to $36,451.
Aggregate future principal payments are as follows:
Fiscal year ended March 31,
2004 $ 14,358
2005 10,213
2006 4,325
2007 3,358
Thereafter 4,197
----------
$ 36,451
==========
11
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 7- ACCOUNTS RECEIVABLE FINANCING:
The Company has an accounts receivable financing agreement with a factor
which bears interest at 2.5% above prime with a minimum of 12% per annum.
At June 27, 2003 the amount outstanding with the factor was $668,425 as
compared to $712,659 at March 28, 2003. The loan is secured by the
Company's accounts receivables and inventories.
Note 8- 2001 EMPLOYEE STOCK OPTION PLAN:
On December 21, 2001 the Company's shareholders approved the adoption of
the Company's 2001 Employees Stock Option Plan to provide for the grant of
options to purchase up to 750,000 shares of the Company's common stock to
all employees, including senior management.
Options granted to employees under this plan may be designated as options
which qualify for incentive stock option treatment under Section 422A of
the Internal Revenue Code, or options which do not so qualify.
Under this plan, the exercise price of an option designated as an
Incentive Stock Option shall not be less than the fair market value of the
Company's common stock on the day the option is granted. In the event an
option designated as an incentive stock option is granted to a ten percent
(10%) shareholder, such exercise price shall be at least 110 Percent
(110%) of the fair market value or the Company's common stock and the
option must not be exercisable after the expiration of five years from the
day of the grant.
Exercise prices of non incentive stock options may be less than the fair
market value of the Company's common stock..
The aggregate fair market value of shares subject to options granted to a
participant(s), which are designated as incentive stock options, and which
become exercisable in any calendar year, shall not exceed $100,000. As of
June 27, 2003 no options had been granted under the plan.
12
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS:
The Company exercised its option to renew its lease on the premises for 10
years. The original lease ran through August 23, 2001.
The Company is obligated under this renewal through August 23, 2011, at
minimum annual rentals as follows:
Fiscal year ending March,
2004 $ 84,573
2005 112,764
2006 112,764
2007 112,764
2008 112,764
2009 112,764
2010 112,764
2011 75,176
---------
$ 836,333
=========
The rental expense for the three months ended June 27, 2003 for this lease
was $28,191.
The terms of the renewal are presently being negotiated by the Company and
its landlord Apple Industrial Development Corporation.
The Company has a collective bargaining multi-employer pension plan with
the United Auto Workers of America, Local 259. Contributions are made in
accordance with a negotiated labor contract and are based on the number of
covered employees employed per month. With the passage of the
Multi-Employer Pension Plan Amendments Act of 1990 ("The Act"), the
Company may become subject to liabilities in excess of contributions made
under the collective bargaining agreement. Generally, these liabilities
are contingent upon the termination, withdrawal, or partial withdrawal
from the Plan.
The Company has not taken any action to terminate, withdraw or partially
withdraw from the Plan nor does it intend to do so in the future. Under
the Act, liabilities would be based upon the Company's proportional share
of the Plan's unfunded vested benefits which is currently not available.
The amount of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under this pension plan were $14,117 for the three months ended
June 27, 2003 and $11,674 for the three months ended June 28, 2002.
As of June 27, 2003, the Company reported arrears with respect to its
contributions to the Union's Health and Welfare plan. The amount due the
Health and Welfare plan was $36,328.
The total amount due of $36,328 is reported on the accompanying balance
sheet as follows: $30,000 as a current liability and $6,328 as a long term
liability.
13
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 9 - COMMITMENTS (continued):
In December 1993, the Company and Local 259 entered into a verbal
agreement whereby the Company would satisfy this debt by the following
payment schedule:
The sum of $2,500 will be paid by the Company each month in satisfaction
of the current arrears until this total debt has been paid. Under this
agreement, the projected payment schedule for arrears will satisfy the
total debt in 15 months.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On April
26, 1996, the PBGC determined that the Salaried Pension Plan did not have
sufficient assets available to pay benefits which were and are currently
due under the terms of the Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"),
that the Plan must be terminated in order to protect the interests of the
Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to
have the Plan terminated and the PBGC appointed as statutory trustee, and
to have July 31, 1995 established as the Plan's termination date.
The Company and the PBGC negotiated a settlement on the entire matter and
on July 2, 2001, an agreement was reached whereby the Company's liability
to the PBGC was reduced to $244,000. The Company will make monthly
payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
In addition, to the above referenced monthly payments, the Company will
make balloon payments of $25,000 each on the following dates:
January 1, 2004
May 1, 2004
May 1, 2005
January 1, 2006
The Company will also grant the PBGC a lien on the Company's machinery and
equipment.
As a result of this agreement the amount due the PBGC has been restated to
$244,000 and is reported on the accompanying balance sheet as follows:
$70,000 as a current liability and $174,000 as a long term liability.
14
IEH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 10 - CHANGES IN STOCKHOLDERS' EQUITY:
Retained earnings (deficit) increased by $9,258, which represents the net
loss for the three months ended June 27, 2003.
15
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this report which are not historical facts may be
considered forward-looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. The words "anticipate", "believe", "estimate", "expect",
"objective", and "think" or similar expressions used herein are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income , and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related footnotes which provide additional
information concerning the Company's financial activities and condition.
CRITICAL ACCOUNTING POLICIES
Accounting Period:
The Company maintains an accounting period based upon a 52-53 week year
which ends on the nearest Friday in business days to March 31st.
Revenue Recognition:
Revenues are recognized at the shipping date of the Company's products.
The Company's policy with respect to customer returns and allowances as
well as product warranty is as follows:
The Company will accept a return of defective product within one year from
shipment for repair or replacement at the Company's option.
If the product is repairable, the Company at its own cost will repair and
return it to the customer. If unrepairable, the Company will either offer
an allowance against payment or will reimburse the customer for the total
cost of the product.
Most of the Company's products are custom ordered by customers for a
specific use. The Company provides engineering services as part of the
relationship with its customers in developing the custom product. The
Company is not obligated to provide such engineering service to its
customers. The Company does not charge separately for these services.
Inventories:
Inventories are stated at cost, on a first-in, first-out basis, which does
not exceed market value.
16
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk:
The Company maintains cash balances at one bank. Amounts on deposit are
insured by the Federal Deposit Insurance Corporation up to $100,000 in
aggregate. There were no uninsured balances at either June 27, 2003 or
March 28, 2003.
Property, Plant and Equipment:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization using the Modified Accelerated Cost Recovery System (MACRS)
method over the estimated useful lives (5-7 years) of the related assets.
Maintenance and repair expenditures are charged to operations, and
renewals and betterments are capitalized. Items of property, plant and
equipment which are sold, retired or otherwise disposed of are removed
from the asset and accumulated depreciation or amortization account. Any
gain or loss thereon is either credited or charged to operations.
Income Taxes:
The Company follows the policy of treating investment tax credits as a
reduction in the provision for federal income tax in the year in which the
credit arises or may be utilized. Deferred income taxes arise from
temporary differences resulting from different depreciation methods used
for financial and income tax purposes. The Company has adopted Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes".
Net Income Per Share:
The Company has adopted the provisions of SFAS No. 128, "Earnings Per
Share", which requires the disclosure of "basic" and "diluted" earnings
(loss) per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during
each period.
Diluted earnings per share is similar to basic earnings per share except
that the weighted average number of common shares outstanding is increased
to reflect the dilutive effect of potential common shares, such as those
issuable upon the exercise of stock or warrants, as if they had been
issued. For the three months ended June 27, 2003 and June 28, 2002, there
were no items of potential dilution that would impact on the computation
of diluted earnings or loss per share.
Fair Value of Financial Instruments:
The carrying value of the Company's financial instruments, consisting of
accounts receivable, accounts payable, and borrowings, approximate their
fair value due to the relatively short maturity (three months) of these
instruments.
17
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities
at the date of the financial statements. Actual amounts could differ from
those estimates.
Impairment of Long-Lived Assets:
SFAS No. 121, "Accounting For The Impairment of Long-Lived Assets To Be
Disposed Of", requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has adopted SFAS
No. 121. There were no long-lived asset impairments recognized by the
Company for the three months ended June 27, 2003 and June 28, 2002.
Reporting Comprehensive Income:
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains and losses) in an entity's financial statements. This
Statement requires an entity to classify items of other comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a
statement of financial position. There were no material items of
comprehensive income to report for the three months ended June 27, 2003
and June 28, 2002.
Segment Information:
The Company has adopted the provisions of SFAS No. 131, "Disclosures About
Segment of An Enterprise and Related Information." This Statement requires
public enterprises to report financial and descriptive information about
its reportable operating segments and establishes standards for related
disclosures about product and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the Company's
presentation of its results of operations or financial position.
18
IEH CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, percentages for
certain items reflected in the financial data as such items bear to the
revenues of the Company:
Three Months Ended
---------------------
June 27, June 28,
2003 2002
-------- --------
Operating Revenues (in thousands) $ 1,222 $ 1,212
-------- --------
Operating Expenses: (as a percentage of operating revenues)
Cost of Products Sold 74.0% 72.2%
Selling, General and Administrative 19.8% 16.3%
Interest Expense 2.4% 2.9%
Depreciation and Amortization 4.2% 4.2%
-------- --------
Total Costs and Expenses 100.4% 95.6%
-------- --------
Operating Income (loss) (.4%) 4.4%
Other Income -- --
-------- --------
Income (loss) before Income Taxes (.4%) 4.4%
Income Taxes (.3%) .3%
-------- --------
Net Income (loss) (.7%) 4.1%
======== ========
COMPARATIVE ANALYSIS-THREE MONTHS
Operating revenues for the three months ended June 27, 2003 amounted to
$1,222,252 reflecting a 1% increase versus the comparative three months
operating revenues of $1,211,693. The increase is a direct result of an
increase in commercial, governmental and military sales, during the three
months ended June 27, 2003 as compared to the three months ended June 28,
2002.
Cost of products sold amounted to $903,989 for the three months ended June
27, 2003 or 74.0% of operating revenues. This reflected an increase of
$29,246 or 3.3% of the cost of products sold of $874,743 or 72.2% of
operating revenues for the three months ended June 28, 2002.
Selling, general and administrative expenses were $242,856 or 19.8% of
revenues for the three months ended June 27, 2003 compared to $197,683 or
16.3% of revenues for the comparable three month period ended June 28,
2002. The increase of $45,173 or 22.9% was primarily due to an increase in
travel during the three months ended June 27, 2003.
19
IEH CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
COMPARATIVE ANALYSIS-THREE MONTHS (Continued)
Interest expense was $29,798 or 2.4% of revenues for the period ended June
27, 2003 as compared to $34,650 or 2.9 % of revenues in the three month
period ended June 28, 2002.
Depreciation and amortization of $50,700 or 4.2% of revenues was reported
for the three month period ended June 27, 2003 . This reflects a minimal
increase from the comparable three month period ended June 28, 2002 of
$50,400 or 4.2% of revenues.
The Company reported a net loss of $9,258 for the three months ended June
27, 2003, representing basic loss per common share of $ .004 as compared
to a net income of $50,137 or $.022 per common share for the three months
ended June 28, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported working capital deficit as of June 27, 2003 of
$124,020 as compared to a working capital deficit of $74,495 at March 28,
2003. The decrease in working capital of $49,525 was attributable to the
following items:
Net income (loss)
(excluding depreciation and amortization) $ (9,258)
Capital expenditures (62,538)
Other transactions 22,271
---------
$ (49,525)
=========
As a result of the above, the current ratio (current assets to current
liabilities) was .93 to 1.0 as of June 27, 2003 as compared to .97 to 1.0
at March 28, 2003. Current liabilities at June 27, 2003 were $1,856,755 as
compared to $1,992,702 at March 28, 2003.
The Company expended $62,538 in capital expenditures in the three months
ended June 27, 2003. Depreciation and amortization for the three months
ended June 27, 2003 was $50,700.
The Company has an accounts receivable financing agreement with a factor
which bears interest at 2.5% above prime with a minimum of 12% per annum.
The agreement had an initial term of one year and will automatically renew
for successive one year terms, unless terminated by the Company or Lender
upon receiving sixty days prior notice. The loan is secured by the
Company's accounts receivable and inventories. At June 27, 2003 the amount
outstanding was $668,425 as compared to $712,659 at March 28, 2003.
20
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company has a collective bargaining multi-employer pension plan with
the United Auto Workers of America, Local 259. Contributions are made in
accordance with a negotiated labor contract and are based on the number of
covered employees employed per month.
With the passage of the Multi-Employer Pension Plan Amendments Act of 1990
("The Act"), the Company may become subject to liabilities in excess of
contributions made under the collective bargaining agreement. Generally,
these liabilities are contingent upon the termination, withdrawal, or
partial withdrawal from the Plan.
The Company has not taken any action to terminate, withdraw or partially
withdraw from the Plan nor does it intend to do so in the future. Under
the Act, liabilities would be based upon the Company's proportional share
of the Plan's unfunded vested benefits which is currently not available.
The amount of accumulated benefits and net assets of such Plan also is not
currently available to the Company. The total contributions charged to
operations under this pension plan were $14,117 for the three months ended
June 27, 2003 and $11,674 for the three months ended June 28, 2002.
As of June 27, 2003, the Company reported arrears with respect to its
contributions to the Union's Health & Welfare plan. The amount due the
Health & Welfare plan was $36,328.
The total amount due of $36,328 is reported on the accompanying balance
sheet as follows: $30,000 as a current liability and $6,328 as a long term
liability.
In December 1993, the Company and Local 259 entered into a verbal
agreement whereby the Company would satisfy this debt by the following
payment schedule:
The sum of $2,500 will be paid by the Company each month in satisfaction
of the current arrears until this total debt has been paid. Under this
agreement, the projected payment schedule for arrears will satisfy the
total debt in 15 months.
On June 30, 1995, the Company applied to the Pension Benefit Guaranty
Corporation ("PBGC") to have the PBGC assume all of the Company's
responsibilities and liabilities under its Salaried Pension Plan. On April
26, 1996, the PBGC determined that the Salaried Pension Plan did not have
sufficient assets available to pay benefits which were and are currently
due under the terms of the Plan.
The PBGC further determined that pursuant to the provisions of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"),
that the Plan must be terminated in order to protect the interests of the
Plan's participants. Accordingly, the PBGC proceeded pursuant to ERISA to
have the Plan terminated and the PBGC appointed as statutory trustee, and
to have July 31, 1995 established as the Plan's termination date.
21
IEH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company and the PBGC negotiated a settlement on the entire matter and
on July 2, 2001, an agreement was reached whereby the Company's liability
to the PBGC was reduced to $244,000. The Company will make monthly
payments to the PBGC as follows:
September 1, 2003 to August 1, 2004 $2,000 per month
September 1, 2004 to August 1, 2006 $3,000 per month
September 1, 2006 to August 1, 2007 $4,000 per month
In addition, to the above referenced monthly payments, the Company will
make balloon payments of $25,000 each on the following dates:
January 1, 2004
May 1, 2004
May 1, 2005
January 1, 2006
The Company will also grant the PBGC a lien on the Company's machinery and
equipment.
As a result of this agreement the amount due the PBGC has been restated to
$244,000 and is reported on the accompanying balance sheet as follows:
$70,000 as a current liability and the balance of $174,000 as a long term
liability.
EFFECTS OF INFLATION
The Company does not view the effects of inflation to have a material
effect upon its business. Increases in costs of raw materials and labor
costs have been offset by increases in the price of the Company's
products, as well as reductions in costs of production, reflecting
management's efforts in this area.
While the Company has in the past increased its prices to customers, it
has maintained its relative competitive price position. However,
significant decreases in government, military subcontractor spending has
provided excess production capacity in the industry which has tightened
pricing margins.
The Company does not view the effects of inflation to have a material
effect upon its business. Increases n costs of raw materials and labor
costs have been offset by increases in the price of the Company's
products, as well as reductions in costs of production, reflecting
management's efforts in this area.
While the Company has in the past increased its prices to customers, it
has maintained its relative competitive price position. However,
significant decreases in government, military subcontractor
22
spending has provided excess production capacity in the industry which has
tightened pricing margins.
Item 3 Controls and Procedures
Our management, under the supervision and with the participation of our
chief executive officer and chief financial officer, conducted an evaluation of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 (the "Exchange Act") Rules 13a-14 (c)) within 90 days of the filing
date of this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on
their evaluation, our chief executive officer and chief financial officer have
concluded that as of the Evaluation Date, our disclosure controls and procedures
are effective to ensure that all material information required to be filed in
this Quarterly Report on Form 10-Q has been made known to them in a timely
fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not involved in any legal proceedings which may have a
material effect upon the Company, its financial condition or operations.
Item 2. Changes in Securities and Use or Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Shareholders
None. The Company's Annual Meeting of Shareholders has been scheduled for
Friday October 10, 2003 for record holders as of Friday, August 29, 2003.
The Board of Directors anticipates that the only matters to be acted upon
will be the election of directors.
23
Item 5. Other Matters.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 31.1 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 31.2 Certifications Pursuant to Section 302 of the Sarbanes Oxley Act
Item 32. Certifications Pursuant to Section 906 of the Sarbanes Oxley Act
(b) Reports on Form 8-K during Quarter
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly cause this report on Form 10QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
IEH CORPORATION
(Registrant)
August 7, 2003 /s/ Michael Offerman
--------------------------------
Michael Offerman
President
August 7, 2003 /s/ Robert Knoth
--------------------------------
Robert Knoth
Chief Financial Officer
24